Kirkland & Ellis expanding real estate practice

But aggressive hiring of lawyers from other firms doesn't mean market has turned the corner

July 15, 2011|Ameet Sachdev's Chicago Law

Kirkland & Ellis is bullish on real estate — not actual property, but rather deals and dealmakers.

Since March, the law firm, the largest in Chicago, has paid top dollar to hire 10 lawyers from other firms who focus on different parts of the commercial real estate market, including financing, tax, transactions and development work. The new partners include Andrew Small and Rachel Brown from Chicago-based Katten Muchin Rosenman, which the firm will announce Friday.

For a firm not traditionally known for its real estate practice, Kirkland has grabbed the attention of the Chicago legal market. Its aggressive hiring also has added spice to the city's legal recruiting wars, as the biggest firms jockey for attorneys who are proven business generators.

Kirkland's investment in lawyers, however, should not be read as a signal that the real estate market has turned the corner, cautions Jeffrey Hammes, the firm's chairman.

"We are not trying to time the market," he said. "It's a long-term pledge to say we want to be in this place."

If that's the case, some wonder whether Kirkland will be able to bring in enough business to justify the big salaries the firm is paying some of its new partners. The firm lured at least two with offers of $4 million to $5 million per year, according to sources familiar with the offers.

While the salaries may seem exorbitant among corporate law firms in Chicago, they are not out of line at Kirkland, where the average compensation per equity partner was $3.1 million last year, according to American Lawyer magazine. Top Kirkland partners earn salaries more in line with Wall Street law firms, making them the envy of their peers in Chicago, where the second most profitable firm on a per-partner basis clocked in at $1.5 million.

Hammes declined to comment on the new partners' salaries other than to say many were well compensated at their previous firms and "they didn't come over for less money."

Coming off a successful 2010, Hammes was studying areas of potential growth when three of Kirkland's real estate partners left for rival Latham & Watkins in March. The departures galvanized Hammes, who is involved in most hiring.

Real estate work has traditionally complemented the firm's stronger practices in bankruptcy and private equity. The financial crisis prompted banks and other institutional investors to reduce their real estate loans, creating a lot of work for lawyers. While clearing out distressed inventory will continue, more capital has become available for real estate deals as financial markets have stabilized and delinquency rates have declined.

Hammes said he decided to go above and beyond merely filling the hole in Chicago. "We wanted to build a broader, more experienced team," he said.

He's not interested in lawyers who negotiate office leases or focus exclusively on helping developers, work that is considered price sensitive and not as lucrative. Hammes says simply, "We're looking to represent pools of capital who are looking to do a lot of deals."

And coming off a record year of profits, Hammes has the cash to make high-profile hires, also known as "laterals" in the legal market.

"Kirkland is definitely in a position to be among the most serious buyers of talent in the country," said Kay Hoppe, a Chicago legal consultant. "They have never been as lateral friendly as they are now."

Kirkland struck quickly. In April, it hired Kelly Ryan, 37, from Chicago-based Mayer Brown, where he put together private investment funds focused on real estate. In May, the firm added three partners to its New York office from White & Case, including the head of its global real estate practice.

In June, Kirkland raided Mayer Brown again, luring away longtime partner Edward Schneidman, 55, who represents real estate investment trusts, or REITs, an industry in which Kirkland had little presence. Schneidman has been involved in some large deals, such as the $14 billion merger announced in January of Denver warehouse REIT ProLogis, his client, with rival AMB Property Corp.

"Mayer Brown has a great firm and a lot of talented lawyers, but I'm excited about the opportunity here," Schneidman said. William Levy, 47, a Mayer Brown tax partner, came over with Schneidman.

The hiring spree has continued in July. Kirkland recruited Daniel Perlman, 50, and Jeffrey Rheeling, 44, from the Chicago office of Paul, Hastings, Janofsky & Walker. Perlman has represented Tribune Co., parent of the Chicago Tribune, in real estate matters. He also has represented Chicago real estate billionaire and Tribune Co. Chairman Sam Zell in a variety of transactions. Most recently, he closed a $450 million deal for Equity LifeStyle Properties Inc., a REIT that owns mobile-home parks.

Perlman, who also has worked at Katten Muchin, was reunited this week with Small, 46, who was the co-chair of Katten's Chicago real estate practice.

"Even though we didn't have (the) strongest real estate platform, people wanted to talk to us," Hammes said.

It doesn't hurt, of course, to be the most profitable firm in the city.